hello everybody welcome to another episode of the tf podcast where we discuss technology business and finance and sometimes that revolves around blockchain and cryptocurrency i'm really excited for my guest today his name is mason borta he is the ceo and founder of tokensoft and uh they're working right now to launch uh the first ipo uh with the blockchain so i'm excited to kind of learn more about that and with that mason if you could introduce yourself to everybody that'd be fantastic okay yeah thanks thanks so much for having me uh so reminds my name is mason the ceo of tokensoft and uh we're a blockchain infrastructure provider that focuses on securities so for companies and funds that are looking to issue security tokens we provide the infrastructure that lets them fundraise for a new company or a fund right now uh imx is using us to do an ipo and you can also use our technology to issue and manage your securities on the blockchain so we have a set of smart contracts that make this possible and a dashboard that helps you issue and manage the compliance around your security and then we do have some infrastructure as well for sort of secondary market trading that we provide to uh issuers as well yeah i'd love to just kind of differentiate there too because you know often we hear a blockchain crypto ico right initial coin offering that's not what you're doing here you're doing an ipo right and so um you know i love kind of where did uh where did that kind of thought come through it's like hey like let's not do this the coin offering thing let's actually do a regulated security you know offering um the way it's done essentially on wall street uh but using the blockchain yeah so uh i've been in the blockchain space since uh late 2013 and up until 2017 it was about uh infrastructure providers trying to figure out the money transmission laws or trying to figure out how to build infrastructure around uh holding and helping people buy and sell bitcoin um and so it's so all that infrastructure was built around you know how do we help service uh digital currencies uh and uh those are very centralized institutions if you look at the exchanges uh it's sort of an all-in-one package where it's compliance up front exchange in the middle in custody in the back and in the summer of 2017 we saw the securities regulators in the us the sec [Music] start to provide a little bit of guidance as to what was the security on the blockchain what wasn't and uh that week uh i decided to start tokensoft and and the reason being that uh there there was i sort of saw this opening where there needed to be infrastructure for securities on the blockchain and and from my perspective as a as a developer um the technology always maps into the regulations and so that's why those cryptocurrency exchanges are very centralized um in the in the world of securities the regulations are a lot more fragmented um just to take one security to market publicly there's a lot of different entities that need to come together to make that happen and there's a lot of piece of the puzzle there's a lot of different licenses you need to help help do that and so uh i sort of saw a little bit of an opening to build purpose-built infrastructure for securities just because the technology would just map differently and manifest differently and i thought that would give us a moat um and so yeah here we are three years later and we launched actually um two publicly registered tokens um so one was for the arca us treasury fund um and that was about a month ago also scc registered um and uh this past week with inex the first blockchain ipo this one structure is an f1 offering um and so yeah we're just really excited to finally see this happen yeah i think it's super interesting um can you kind of differentiate for those of us that you know might have experienced icos or or maybe even be afraid of icos and so forth like what's the main difference here as to um you know because i'm assuming there's probably even some people listening here and they're still hearing ipo but they're hearing token and so they're like well wait a second how how could this actually work that way what would you say the difference is between a blockchain ipo and um you know running an ico yeah so um in i believe it was august of 20 uh 2015.
um i was working at a company called bitco and uh i was tasked with helping set up the wallop for for one of these companies that came in and uh basically what they were doing was uh they needed a bitcoin wallet so they could uh take some money in and what they were giving change was a token and that was the first uh iso on ethereum um and those are those are largely just open crowd sales um there's not necessarily any any compliance procedures or adherence to any regulatory structure um and that was that was common back then um so it started in uh i believe 2014 or 2015 was when we started to see these things where people would put a bitcoin address on a forum post and tell people what they're doing and people would put in money if they want to see the project come to fruition and this manifested through 2016-2017 into companies putting up a website announcing what project they wanted to do and people would go and fund it and in exchange there'd be a token that provides access to their network again there's there's usually there was usually no regulatory structure for these and those were those were icos where it's you're just openly taking money in from investors online and in this case the the securities regulations basically provide a wrapper if you think of that as just a technology a new technological innovation where you can easily take money online and you give back a asset that represents ownership in something or rights to something um the security tokens are just that technology with a securities regulation wrapper around it and so there's a bunch of rules that we have to follow and all of these are sort of outlined in the in the arca perspective prospectus as well as the inx perspective so you can sort of read all these rules that they had to follow to be able to get sec approval to go to market with these assets yeah because you know after the ico craze what in 2017 maybe early 2018 and people are finding like okay wait don't do that then like hey let's do these um security tokens or like these security token offerings so there's you know a bunch of people popped up saying like let's do security token offer offerings but um it seemed like they were still doing it based off of like ico type rules right as opposed to like you know all the stuff that you're talking about actually like the digital rapper around basically you're putting digital wrap around paper right like and so yeah i think that's super uh super interesting makes a lot of sense um you know with with inx for example you know um and maybe even just using them as an example or as you're talking to companies who might be thinking about doing um something similar what's kind of the i wanna say sales pitch but what's kind of the what's the how do you differentiate and say like hey like the reason why you want to use you know this as an offering as opposed to a standard ipo or as i don't know a small market cap you know ipo or even a crowd fund or those sort of things what are kind of like the reasons why someone would go this path uh as opposed to some of the other paths yeah so um i think it's still it's still really early for security tokens so we're still building up all the infrastructure so all the features that come and benefits that come with the normal ipo are still not necessarily there on the blockchains because we're still building up that infrastructure one element that we're noticing that our customers are taking advantage of is just the global accessibility um so our just because our customers always wanted to have a global reach um our platform was structured to adhere to global securities laws or global compliance requirements and so definitely you know one feature of this is just uh broader participation by more people around the world and more types of people around the world regardless of sort of wealth or status or you know you don't basically one one major theme i'm noticing is you don't have to be a bank to participate in these types of sales which are commonly um just participated in by you know investment banks and i think the other the other factor that i'm sort of seeing is um step one is to purchase the security uh step two is you have to be able to buy and sell it that's a standard feature and and the exchanges today and so that's another factor that's sort of interesting is um because this is tracked on the blockchain these can be more liquid because we can embed the compliance requirements into the smart contract um and so if a transfer is not valid it will just be prevented otherwise you can interact with all kinds of people around the world um and uh and have that sort of accessibility it doesn't exist in centralized exchanges today sure and then so what does secondary market activity look like is are these so like in the inx situation is this uh a token that lives on you know that has like would be um on different exchanges is this something more that would be like in a traditional i don't know i could go to my e-trade and and find these these uh shares how does that work yeah so um i i don't know the details specifically around inx um i don't know if there are even any plans for that right now or that have been announced and so the prospectus is definitely a good place to look for that type of information otherwise one thing that's sort of interesting is these tokens are now trading on a shared ledger and and is publicly accessible so service providers around the world that want to provide access to these assets can sort of opt into doing that and that's not necessarily a feature of centralized exchanges when you go lists somewhere you sort of just sit on on that exchange but uh with with these assets on the blockchain uh any exchange out there can sort of read our api docs and integrate these um overnight and so i think that's definitely one thing that's interesting is uh this is sort of a opt-in environment now for people that want to integrate these assets and you sort of seen that with the custody providers so far so bitco anchorage have integrated these tokens but for the exchanges i think that might be further downstream um and once these uh tokens are actually um subscribed to and distributed out there then you'll probably see a little bit more activity on exchanges but right now they're not necessarily on exchanges uh yet just because still early sure sure um no yeah i mean it's it's it makes a lot of sense and you know i'm wondering is the path in you know for token software is a path in this industry i guess that you know we start seeing quote-unquote traditional companies start thinking about um security token offerings like you know companies that aren't in the crypto space to begin with but just as a way of offering more liquidity do you see that path in some future um i think it's going to be a lot of experimentation at first um so i think we're sort of at the stage we're trying to figure out okay what's what's really amazing about doing a security token um and so one element that that you'll see in the in the inx website is they sort of describe the token as a different asset class and that token is supposed to provide 40 of the cash flows of the company to investors based on the material that's available there and i think that's definitely a new concept and just the concept that you can have a token that maybe gives you access to certain features in an application or a service or that gives you some sort of discount on services is still relatively new because we never had like a security that we could that was portable that we could move from one wallet to another one service to another service and where cash flows could theoretically be sent directly to our accounts right it doesn't necessarily have to go through a bank it can sort of show up in your wallet instantly um and so i think uh there's probably you know 10 to 15 more of these little quirks that we're going to find are interesting and valuable over the next two years and i think um as awareness of these types of assets sort of uh it increases um i do think that more and more people will try to adopt it just because it's it's new it's different we don't know what's super valuable about it yet hopefully inex will show us um and uh and we'll see a lot more of these on on the blockchain yeah yeah definitely now um with something like this um do the same rules apply that we hear in crypto often you know like not your keys not your wallet you know if if you were um excuse me if you were storing uh these tokens on a wallet and you know you lost your keys are they are they gone forever it's a that's a really good question um and that's something that uh that was actually a question we also got from the from the sec that we had to uh sort of package a solution for and um so so we so for the tokens that we put out there we use a standard called erc1404 and it's called the simple restricted token standard and it has a it has a set of features and so uh the the main feature of the standard is that you can now uh have different uh lists of of token holders and you can basically prevent transfers from one person to another person if it's unauthorized or if it's not a legal transaction um and so that's sort of the base feature of our tokens and then we've layered a bunch of other features on top of it and so the ability to freeze the token i'll explain why the ability to freeze the token the ability to revoke a token and reassign it somewhere else and so as we were trying to put these tokens out there in the world and make sure they followed the securities laws it turned out that we needed a regulatory structure around this token as well for for companies like ins that are ssc registered and so we have set up a transfer agent and so the transfer agent is a service that you you as an investor can go to um if you lose your wallet um and if you lose your wallet you go to the tokensoft transferation you contact them and you say i lost my wallet there's a procedure around getting your tokens into a new wallet that involves those features the ability to freeze at a token so you can investigate the ability to revoke a token so you can take it out of their old wallet and then reassign it to their new one and so that was sort of a key piece of functionality that we had to figure out uh just to make all this possible yeah yeah super interesting um you know i want to move the conversation more to the founder side of things right so um you know as i'm sure you experience very much uh you know being in crypto and blockchain even as recently as a year ago was a lot different than it is right this second you know today right it seems like there's more favorability now than there ever has been but when i'm assuming when you're getting started and you're talking to people or you know investors or so forth and you're telling me what you're doing i'm assuming you probably experienced quite a bit of resistance you know i'd love to kind of understand how that went for your laughing so i'm assuming that's true how was that and you know like when you come up with this idea and um you know what would you kind of do what was that path yeah so uh the first line of code at tokensoft was july 24th and uh we launched our first two customers on september 9th and um actually we didn't start the company off uh by fundraising we actually started off by just picking up customers and generating when was this you said july july of when so july 24th was for first line of code uh incorporation was september 6th and then first two customers were uh launched on the same day on september 9th which sorry but what year though sorry 2017 2017.
okay cool yeah wow nice and so you basically funded by customers that's awesome yeah so uh we got about a year in um and uh that's when uh so i i wanted to fundraise around december through through april and it was just we're just so busy with like sales that are sort of hard it's i think it's impossible to focus on sales and fundraising at the same time um so we kicked that off and then it sort of fell out of focus and then we closed around uh july of 2018 uh for four million dollars led by base 10 and the ventures and then we also had participation by coinbase and fidelity um so uh at that point it was like the investors came to us at that point i wasn't actually i didn't have fundraising on my mind anymore because you were because you had the sales that you know people were starting to recognize you basically right yeah and um yeah we started to develop a reputation um i think we've always been good at actually delivering and getting the job done and so that that word sort of got around so as investors were poking around the security token space that was something that came to light and sort of led them lead them to us nice nice but and so you said you're you know you you initially started looking at fundraising you know in that december period did you talk to traditional investors at first or were you always focused on like blockchain and crypto investors how did they see it yeah you know back then to like what was that what's the difference right so when you were first thinking about it to like when they started to you know knock on your door what what was that juxtaposition like so my network was always just in the crypto space so all the like crypto investors and angel investors i i i knew um and one very common piece of uh pushback was uh oh uh you're making you're making these security tokens why would you why would you do that everyone wants utility tokens why don't you go figure that out nice and um in my perspective like this blockchain technology always arcs from uh new technology technological innovation that people are just playing around with and sort of matures into products and now that their products are servicing people and now they have to be regulated and so we sort of just made an early bet on the regulatory side of things and just went down that path um and then into summer of 2018 i think we maybe 15 to 20 of the investors that we spoke with were traditional um i didn't poke around too much um but i think from their perspective uh they saw a giant uh ball of blockchain stuff and uh they were just looking at you know which companies everyone was talking about to to you know invest in um and so you know some people were barely figuring it out but like most people didn't know why the regulatory side was necessary they saw it more as a detriment to to the space um and uh yeah i mean we saw that with like exchanges as well right early on a lot of them were unregulated they had to regulate over time and then 2018 i got a cold email i think it was on a saturday at 11 from tj at base 10 and i think it was very short i looked them up they were still early so there wasn't too much on the website um and so i was like yeah can you come to the office at four o'clock and so come to office uh that evening and on a saturday and uh we just got along really well and uh he was really interested in what we're doing and how we were thinking about things and i just spoke with a lot of folks in the space just enjoyed hearing about our reputation as well and then it just went from there and um we we had a lot of investors that that had committed early on just from conversations i had um but yeah base base 10 adventures ended up leading that round nice nice that's awesome that's awesome yeah i always love to talk to uh crypto founders about the fundraising just because you know fundraising for any company uh is usually pretty difficult um you know then fundraising for crypto there's usually some interesting uh stories there um you know so kind of going along to um you know what's happening right now in the world uh in the finance world right so crypto for the most part like we talked about a moment ago it's it's the thought on it is a lot more positive than it probably has been in a while you know bitcoin in particular and and so forth and so um you know the fact that you're also working on ipos and we see the stock market you know just rocket shipping everything seems to be rocket shipping right now um even though the economy is in this weird position because of you know coronavirus and all this kind of stuff just what are your just overall thoughts on on the market and what's happening and you know what that means for some of these companies that might be thinking about you know ipoint and that sort of thing yeah i think the uh stock market has uh consistently performed uh since it feels like uh i think i think since april or may i don't fall out too closely um but i i do think that the uh the the fed does have a big role uh in that and that's that's something i i'm not a big fan of so i'm hoping that uh this ipo and all these assets being on the blockchain sort of uh sort of turns the tide um from this traditional financial infrastructure which uh can be affected and tampered with um into more trusted and transparent infrastructure on the blockchain um so i that's sort of my hope is that um you know the people growing up today that are looking at the traditional stock market they're looking at the crypto markets they do see uh the the blockchain markets as a higher integrity alternative um to participate and hopefully more interesting you know it's one where you can get your hands dirty you can develop your own applications on top of it it's one where you know you can transact with people around the world that you've never met before and so i'm hoping this is sort of the beginning of a migration from traditional wall street on onto the blockchain yeah that could be um i i think there there's definitely definitely something there uh you know on that side of things and um you know it's it's you start seeing like these big company you know i think it was fidelity earlier this week just launched a a fund um i can't remember the name of the company i'll stop my head right now but that company that just put like i think they bought 250 million dollars worth of bitcoin um was it what's that company called you know i'm talking about what's it called kill me i'll put it in the show yes it's like a micro micro something yeah um you know paul tudor jones i mean like yeah it's it's definitely uh you know getting getting more and and more yes so i think there's a there's a conglomerate of things that are happening so uh one is that you know the uh institutional space has finally come around to bitcoin um in 2015 uh when bitcoin was starting to get more and more popular and more talked about uh all the all the banks out there tried making their own private blockchains to compete with bitcoin um and that didn't work and at the same time you're seeing uh the crypto space understand regulations better um so you're seeing more formal institutions service the crypto market from the otc side from the fun side investment side and you're seeing um on on you're seeing cme try to participate back and try to participate everyone's trying to have a bitcoin play now and uh on the other side of things um you have the uh d5 stuff happening and so this is probably the fastest um iteration of technology that has ever existed in any vertical um there's almost a few defy apps that are that are popping up uh every day and they're they're all very intricate from a technological perspective very intellectual um with with icos yeah there was a lot of movement but it wasn't very intellectual people were just putting up an address receiving money and sending out a token uh so very very simple to do but now with this defy yield farming stuff there's just these very complex applications that are being created where there's the ability to generate revenue by making a few hops that you have to figure out by studying the code for a day and and so i think uh this is another thing that's happening that's going to push the space really quickly so i think the um sort of the institutional acceptance is interesting and i think just the pace of iteration innovation is really interesting because i i personally believe uh the faster you can iterate on technology the more likely you're able to come up with successes and so the faster the industry can move the more likely it's going to be successful yeah definitely right like the more people um you know fighting to solve the same problem even the competition and like all that kind of stuff i totally agree i mean it's kind of like proof of work but of uh you know working on um you know uh things to improve the space overall who gets their quickest i totally agree um and it you know it's pretty interesting when when you start seeing people that weren't interested in it become more and more interested in it and and not just like from uh you know friends and family standpoints like literally you know some of the wealthiest individuals or big companies you know i i definitely tells you there's something there yeah it's it's like and uh you know open source technology isn't new like there's always technology that anyone around the world on the internet could participate in but now we can transfer something that's very fundamental to us and that's money and so now you can build an app and provide people the opportunity to to make money or to um to also uh develop on the application um and be part of the online community and so there's there's a much stronger gravitational force i think around the blockchain space than there there is definitely around traditional markets uh wall street um as well as uh you know the open source community yeah definitely you know so so on that like you you uh we talked a little bit about this a little moment ago but um you know do you see more security tokens coming from like traditional companies not necessarily as an ipo method but either as um you know means of transacting you know there's there's definitely different stable coins and those sort of things out there but what are your kind of thoughts overall and just how either wall street or even retailers and brands might start thinking about uh security tokens yeah so i think uh so if you're a really large company or maybe you're publicly traded or you're you have you know a fairly large reputation that you need to manage um the first thing you're going to be worried about if you're trying to experiment with new technology is just the regulatory side of it um and so and we sort of saw that with with stable coins right uh it took a really long time to figure out the regulatory wrappers around stable coins now they're very well understood and now these larger banks and companies are trying to experiment with with stable coins um and now with security tokens the the good thing about the sdc registration process is everything is public and so now what's publicly available on edgar if you go search for for tokensoft you can see the registered securities and basically an outline of how they did it and how they're thinking and it basically shows that the regulatory structure has now been figured out and so i do think that now that the template is out there it does open the door to much larger companies with a lot to lose it does open the door for them to evaluate whether this is an option if there's anything they can experiment with here and so i think that's sort of uh that door is now open and i do think that we will see more companies poking around in 2018 at the beginning we saw we did see some large companies come to us that were either publicly traded or were just you know large larger operating companies and but back then they they came in they came up with a formal plan and they said okay we want to do this and when it came to the finish line they didn't feel comfortable moving forward but now that there are sec registered uh filings or uh offerings out there the filings are public um now hopefully that comfort is there and they can sort of move across that line yeah yeah awesome super interesting well mason uh you know it's been a great conversation uh question i love to ask all my guests as we close is uh what's the question that you have that you would like to ask our guests that they can think about as they go about their day i would uh i would like them to think about whether they are participating enough on crypto twitter because uh there's just uh there's a lot to learn and there's a lot to uh to keep you busy there and uh if you're interested in learning more about the crypto space and just interacting with folks in the space i think that's that's a great place a great place to do it i've definitely learned a lot from poking around there yeah definitely there's always uh interest there's definitely entertainment and and lessons at the same time mason what are some good ways that people can stay in touch with you contact you uh pay attention to what tokensoft is doing yeah um so uh definitely go to our website and sign up for our mailing list um and then uh you can follow us on twitter at tokensoftinc that's tokensoft inc um and then my twitter handle is masonic underscore tweets uh and you can uh follow me on there as well and listen to me complain about regulations nice nice uh well mason thanks again for joining us i appreciate it awesome thanks so much it was a pleasure thank you everybody thank you for listening to another episode of the tf podcast please make sure that you are liked and subscribed do us a favor and fill in those stars goes a long way towards making sure that people get to listen and and see this and get comes up on their feed you can follow me on twitter at jg product or tf labs tflabs underscore and then of course you can learn more and watch more episodes at tflabs.io thanks so much and we'll see you all soon